Patu Keswani, the Chairman of Lemon Tree Hotels, recently decided not to take salary for three months. Other senior members of Keswanis A-team (such as vice presidents and managers) also took pay cuts of between 50 per cent and 65 per cent. When Business Today spoke to Keswani, his rationale was an eye opener. Just about 15 per cent staff in his hotel chain accounts for half the wage bill. "The key decision at the moment for managements is to take pay cuts instead of firing employees, and look for ways to cut fixed costs. Hotel chains can bring down their wage bill by 30-40 per cent without touching 85 per cent of the staff," he says.
In the large universe of the travel and tourism sector, Lemon Tree is among the bigger names that have been affected by the coronavirus pandemic. As per industry body FAITH (Federation of Associations in Indian Tourism & Hospitality), the travel and tourism sector is staring at losses of nearly Rs 5 lakh crore, apart from five crore lay-offs, as a result of coronavirus, though these projections keep changing as the situation evolves.
Most large players are devising strategies - almost on a daily basis - to tide over the crisis. However, the way the crisis is unfolding is so unpredictable that even the best strategies can fail. According to the promoter of a leading hotel chain, it's estimated that nearly 20 per cent travel and tourism companies, mostly in the informal sector, will not survive for more than a year.
So far, travel and tourism companies have resisted laying off employees. Most have announced salary cuts (or furlough in some cases like SpiceJet and GoAir). But the question is: how long can they continue to hang fire, especially since revenues have been badly hit due to global travel bans? Will airlines, hotel companies and travel agencies - the last two being highly unorganised - have to resort to firing employees in case the lockdown is extended repeatedly? Or is there a middle path?
The Balancing Act
Following Prime Minister Narendra Modi's address to the nation on April 14 in which he asked employers to avoid cutting jobs, there have been no instances of lay-offs so far except retrenchment of some expat pilots by Nusli Wadia-owned GoAir. Though airlines have started feeling the heat after Aviation Minister Hardeep Singh Puri asked them to discontinue bookings till further notice. There are speculations that domestic bookings may restart in June. This means a long waiting period for airlines.
Meanwhile, the impact of coronavirus has started to unfold on global carriers. For instance, Virgin Australia recently entered bankruptcy proceedings whereas cash-strapped Norwegian Air laid off 4,700 employees. British Airways has suspended its 30,000-strong workforce with 80 per cent salary cuts. The distress is spreading.
Back home, troubles are coming at a faster pace. GoAir asked its employees to take leave without pay in the third week of April. SpiceJet, too, sent some engineering staff on furlough. Prior to this, these airlines, along with IndiGo, Vistara and Air India, had announced salary cuts for some of their staff which were as high as 50 per cent in some cases. While salary cuts are almost inevitable, there's a clear consensus in the industry that layoffs should be avoided at all costs, especially at mid and junior levels. Why?
One, these people don't add much to the wage bill. Also, it's going to be difficult to find trained people after the situation normalises. Mark Martin, founder of aviation consultancy Martin Consulting, says GoAir should not have laid off expat pilots as there's shortage of senior pilots. "It's a penny-wise, pound-foolish decision. Once business starts, it's going to be employees' market. These pilots are not missionaries. They know the demand-supply situation. They are likely to ask for 30 per cent salary hikes after this is over," he says. In India, the acute shortage of commanders has led to a significant rise in the hiring of expat pilots in recent years. For instance, the number of foreign pilots in domestic airlines rose from 323 in 2018 to about 900 in 2019. About 50 per cent are reportedly employed by IndiGo. "The shortage of pilots is a structural problem which will take years to resolve. Till then, the airlines will be dependent on expat pilots," says Martin.
The trick is to look at each cost item aggressively and go on a minimal mode. Take, for instance, Lemon Tree, which renovates about 1/6th of its hotels every year. It spends some Rs 35 crore a year on this. It plans to push the renovation to next year and avoid discretionary expenses like stationary, flowers, linen, etc. "The target is to bring operating costs at revenue level. Any hotel chain should have enough cash to survive the worst-case scenario," says Keswani.
"Understanding how different businesses are working to skim through this lockdown without major losses, we fear that small travel agents and companies are facing maximum pressure in keeping things together at their end. Measures such as cost cutting, cash conservation, holding off marketing campaigns can help the businesses to survive this period," says Dhruv Shringi, co-founder and CEO at Yatra.com.
The Long and Winding Road
The problem with the current crisis is that no one knows when it will end. The worst-case scenario that Keswani is talking about is two years. It's likely that most companies don't have the resources to last that long. However, it's apparent that once the lockdown ends, there will be a sudden jump in travel demand, as a lot of stranded people will move to their safe zones. This phase will be followed by another blip, and then another spurt of what's now called "revenge tourism" - frequent travellers who couldn't travel during lockdown will plan shorter holidays, avoiding public transport. So, while hotels may get some bookings during the "revenge tourism" phase, occupancy of flights will likely be muted. As such, airlines plan to reduce capacities once operations resume. In a recent webinar organised by the Travel Agents Association of India (TAAI), IndiGo's Chief Strategy and Revenue Officer Sanjay Kumar said the airline plans to restart operations with just 25 per cent capacity. Earlier, IndiGo CEO Ronojoy Dutta had said the airline would fill just 50 per cent seats post lockdown. So, if IndiGo was flying 261 aircraft prior to the lockdown, just 130-odd planes would be in service for some months. "It's clear that nobody knows when the recovery will happen but it's likely that domestic flights will take three-six months, and international 9-12 months, especially the long-haul ones," said Kumar.
Not just planes. Even hotels are going to be done up differently so that social distancing takes precedence over everything else. Cleanliness and hygiene will be top priorities for travellers checking out hotels on review websites such as TripAdvisor. Nakul Anand, Executive Director at ITC, says people rubbing shoulders with each other at popular restaurants like Bukhara (at ITC Maurya, New Delhi) is going to be a thing of the past. "Are we going to see banquets of 1,000 people again? Unlikely. It's not just attitudes or opinions that will change. This crisis is going to change values. When values change, it causes nothing less than a seismic shift. We will have to remove tables between tables so that people can have social distancing," he says.
George Ettiyil, Senior Director (Sales), South Asia, at Lufthansa Group Airlines said in a webinar that a fully recovery in the aviation sector is still years away (by 2023). "Even 9/11 is not comparable to the current crisis. We are facing existential questions with regards to the industry and the airline. Airlines are worst affected because of low margins in the business. We don't expect flights to start at least till July-September. Even then, we will not come back with the kind of capacity we had before. We will start with three flights to some of the gateways in India," he says. Lufthansa is reportedly losing Euro 1 billion every month. In India, the travel and tourism market is highly unorganised. Though the sector contributes about 10 per cent to GDP (about $250 billion), it has about eight lakh unorganised agents as compared to just 53,000 organised players. "The biggest challenge is survival of smaller agents and the bulk of the industry which is highly unorganised. We are looking for government support to pay employees' salaries. Otherwise, there will be huge unemployment in the industry," says Jyoti Mayal, President, TAAI, a large travel agents' body with over 2,700 members, including OTAs (online travel aggregators) like MakeMyTrip and Yatra.
The sector has already made several presentations to different ministries asking for relief in the form of tax waivers (statutory, municipality). Yet, there have been no announcements yet, which has dampened the mood for the time being. "It should not be a case of too little, too late," says Akshay Kumar, Vice Chairman, FAITH.
Domestic to the Rescue
Nevertheless, experts say India is in a much better position than other countries because of low dependence on outbound and inbound segments. Indian tourism is largely driven by domestic demand. For instance, India's total foreign tourist arrivals were 10.59 million in 2018, growth of just 2 per cent over the previous year. In comparison, domestic tourist arrivals were 1,854.9 million, 11.9 per cent more than the previous years, as per CARE Ratings.
ITC's Anand says India is better off due to a large domestic market. "There are two opportunities for us. The first is to promote the domestic market. Our outbound travel is about 25 million [a year]. How can we stop these people from travelling outside? A large proportion of outbound tourism is under MICE [meetings, incentives, conferences and exhibitions] and wedding categories. Can we incentivise corporates through tax concessions to hold their conferences in India? We will revive fast once the vaccine is out," says Anand.
Zubin Saxena, Managing Director and Vice President (Operations), South Asia at Radisson Hotel Group, says business-driven domestic markets will be the first to bounce back after the impact of coronavirus reduces. "We have stayed focused on expanding the domestic footprint with as much as 50 per cent of our business originating from Tier-II and Tier-III cities. Since international travel is expected to have a slow recovery, domestic demand in leisure destinations such as Goa, Kerala, Shimla and Manali will flourish once this is behind us," he says.
Then, the product offering will have to change. For instance, if hotel supply crashes, room rates are likely to come down, and that too for a long period. Why? Unlike aviation where capacity can be ramped up quickly to manage fares, hotel development takes time (seven-eight years). Hotels will have to focus more on bundled products so that the actual room rates can be disguised.
"The companies will need to focus on some low-hanging fruits like pulling foreign destination weddings back to India. There could be new opportunities in areas like yoga, ayurveda and wellness tourism," says ITC's Anand.
The New Normal
Recently, Emirates Airlines grabbed headlines for becoming the first airline to conduct on-site coronavirus tests for passengers boarding a Dubai-Tunisia flight. It's now believed that many foreign carriers will have to follow suit to gain confidence of travellers. But all this is going to come at a cost.
Companies with consumer interface will have to incur additional costs in reducing physical touch points (automated room deliveries, self check-ins) with consumers. This is going to spawn new streams of tech-enabled businesses. "There will be additional costs of somewhere between 10 per cent and 30 per cent if a company gets stringent about new safety protocols, which is going to be the need of the hour," says a tourism consultant.
"Hotels will have to see how they can minimise high contact areas for customers; social distancing during breakfast rush, no-contact check-in; and information on room sanitisation records...," Megha Tuli, Co-founder and Managing Partner, Hotelivate, said in a recent note.
Significant changes are also expected at airports, including the boarding process. IndiGo's Kumar says after every landing, the airline will need 20 more minutes to disinfect its planes. The aircraft turnaround time is expected to double across airlines with new safety procedures. "The number of flights in an airport will go down by as much as 30 per cent just to include new procedures. The entire process of a person travelling from one place to another will change. People will be expected to report at airports much earlier. Airports will have to gear up with new infrastructure. The slot management will become more complex as airports will have to space out flights so that these new procedures can be followed. Not that airlines will have capabilities to fly that many slots," says Murali Ramachandran, CEO of Turkish ground handling firm Celebi Aviation Holding.
In tackling the crisis, every country seems to have taken its own approach. Even within countries, states have been following different standards, which are likely to cause a big headache for travel companies once the business restarts. Hence, there's going to be a need for global standards (in areas like social distancing, health check-ups, travel and medical records) that can be followed by airline and hotel companies across geographies. "There's going to be a new value chain in international travel," says an executive of a large airline.
After the destruction of demand for the next six months, the tourism sector does see light at the end of the tunnel. With the three-point strategy of survive, revive and thrive, defined through specific timelines (see element The Guide to Fighting Coronavirus), players in the sector are preparing to fight back. Though winning this battle will be easier said than done.
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